Dutch economy shrinks far worse than expected

The big surprise of the eurozone GDP figures was that the triple-A rated Netherlands saw its economy shrink by 1.1 per cent in the third quarter - and now faces a third recession in three years

The big surprise in the eurozone GDP figures was the triple-A rated Netherlands, whose economy shrank by 1.1 per cent in the third quarter, far worse than expected, with economists having forecast a fall in output of just 0.2 per cent.

Business and consumer confidence remain low and economists now warn that the Netherlands faces the prospect of another quarter of decline and its third recession in three years.

So, what went wrong? First, the Netherlands processes a lot of trade into and out of Europe. Holger Schmieding at Berenberg bank said: "If we look at the Netherlands as a big harbour, it reacts very sensitively to the gyrations of global trade ... the Netherlands is disproportionately affected by the ups and downs of trade."

Then there is the Dutch austerity programme. The new coalition government recently announced €16 billion of new austerity measures. Wages fell 1 per cent in real terms last year, while unemployment is at a 15-year high.

That and the eurozone crisis have battered consumer and business morale, in turn hitting investment. Business investment has dropped by almost 6 per cent since the third quarter last year, while government investment shrank by 8.4 per cent.